Employee or contractor? Workers’ compensation requirements for contractors, employees and businesses

In Australia, businesses are required to cover employees for workers’ compensation, but people who are self-employed or engaged as a contractor are generally expected to cover themselves.

Whether you’re a business, an employee or a contractor, it’s important to understand your responsibilities and what type of workers' compensation cover you require.

Employee versus contractor

The definition of a worker varies from state to state, and you should seek advice about the specific rules in your state, however there are some general principles you can apply.

Many factors can be used to determine whether someone is an employee or a contractor, however the most important point to consider is usually whether or not they are running a business.

An employee is someone who provides labour to an employer, and can be considered a part of the employer’s business. Contractors, on the other hand, provide a service that is marketed and sold independently, so they are effectively running their own business.

Some key signs that can point to whether someone is classified as an employee or a contractor are identified below:

Employee Contractor
Performing work under the direction and control of their employer Having a high degree of control over how the work is done

 

Having an ongoing expectation of work, often with standard or set hours (though casual employees’ hours may vary) Being engaged to perform a specific task, without expectation of ongoing work

 

Having a fixed salary with superannuation, holiday and sick pay Carrying out work under an ABN or a business they own
Being provided with the tools required to perform their job, a place to work and training as required. Supplying their own tools or materials.

Here are examples to better illustrate the above

Dan the salesman

Dan has recently started a job doing sales at a call centre. He is on a short-term contract, which is probationary, and is told he isn’t covered under his employer’s workers’ compensation policy. Dan is paid on a salary, which includes his superannuation, ten days sick leave and four weeks’ holiday accrued per year. He works fixed hours in an office, with materials and training supplied.

It is likely that in this instance Dan would be considered an employee – the advice he has received is incorrect and he would be covered by his employer’s workers’ compensation policy.

Jan the builder

Jan is a builder, and provides a quotation to a building company for a set amount of hours on a building work site. She invoices through her ABN, has her own tools and manages her own hours. She also subcontracts to contractors who invoice her ABN. She manages her own superannuation and holidays.

In this situation, Jan is most likely a contractor. As a result she would need to have her own coverage set up, so that if she is injured, she can receive compensation.

Incorporated versus unincorporated.

A ‘self-employed’ person can structure their business by setting up a company, operating as a sole trader or as an unincorporated partnership.

Providing your services as a company will generally rule out an employer/employee relationship, because the contract is then between two companies rather than between an employer and an individual. However, the individual would then be an employee of their own company. This is important when considering which company would be liable for a workers’ compensation claim.

For example, Bob is a plumber and operates as Bob’s Plumbing Pty. Ltd. He does some plumbing work for home builder XYZ Homes Pty. Ltd. The contract for services is between Bob’s Plumbing and XYZ Homes. However, Bob’s Plumbing employs Bob, making him entitled to compensation. The claim would be lodged with Bob’s Plumbing Pty Ltd despite the injury occurring on the premises of XYZ Homes Pty. Ltd.

Choosing a policy

When choosing a policy, you must first make sure you understand who you are responsible for covering and what is covered. If you are hiring sub contractors, you must consider if they are employees or contractors, and if so understand if they should covered by the policy. Finally, you should consider the dollar amount you are covered for, and any exclusion from the policy.

If you’re not sure about your workers’ compensation requirements, reach out to our workers' compensation team to help you can get an understanding of the requirements for your industry and location. This will give you peace of mind that you are sufficiently covered for any mishaps that occur. Contact us today to discuss your options or apply.

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This publication is not intended to offer legal advice or client-specific risk management advice. General descriptions contained herein do not include complete definitions, terms, and/or conditions, and should not be relied on for claims management interpretation. Actual claims and risk management policies must always be consulted for full coverage details and analysis.

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